The debt-to-income ratio has hit the headlines again. This time the ratio rose to 167.3 % in the fourth quarter of 2016 compared to 166.8% in the third quarter. That means for every dollar of disposable income, consumers owe $1.67. Approximately 63% of that debt is in mortgages.
While this increase worries some policy-makers, studies have shown that consumers have been able to pay their debt relatively easily. Low interest rates have allowed consumers to pay down more of their mortgage principal, with payments split almost evenly between interest and principal in the fourth quarter.
But for some, the debt load is unmanageable and they search for solutions. You are no doubt familiar with advertisements from debt settlement services that promise to settle a consumer’s outstanding debt, for a fee. The caveat is buyer beware. If you’re considering this option, make sure to do your research and find a reputable company to work with. Or, I may be able to refer you.
Before you pay upfront fees or service charges, I may be able to help. Much of what debt settlement services offer can overlap with the services of a licensed mortgage broker.
Here’s how it works. Mortgage brokers can arrange debt consolidation on a mortgage renewal or on a refinance. When arranging a consolidation mortgage loan on a refinance or renewal the amount of the mortgage principal may be increased to pay out the total debt amount. This becomes part of the mortgage commitment and a condition of the mortgage loan. On closing, your lawyer will disburse the funds to your creditors and register the new mortgage.
What you need to know
A refinance alters the terms and conditions of your mortgage; specifically you are increasing the amount of your mortgage to pay off debt. Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm. Depending on your current mortgage you could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.
As with all renewals, it’s always a good idea to review your mortgage with a mortgage broker who can shop the rates for you and get you the best deal, tailored to your particular situation. And, if you decide to switch lenders, there are no penalties at renewal time.
One of these options may be the perfect solution if you’re struggling with debt. Call me today for more information.
Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com